Bench resources now passé in Indian IT; pink slips gaining momentum

The bulk of service-providing Indian IT tribe is indeed at the crossroads of a colossal digital disruption that calls for a paradigm shift in the way business is sought, developed and delivered. T&M (time & material) driven, long standing, application development and infra management projects, once a given for the sector, are now facing existential questions, with cost and growth making way for revenue and value as the new determinants of a solution provider’s value prop.

Adding to the digital disruption diktat is the challenge posed by Trump’s protectionist policies which adversely affects the fortunes of mass-level back-office custom development, an age-old Indian trump card.

Not only is the industry’s proverbial resource ‘bench’ now passé and short-term niche-skill contracts in vogue, large-scale pink slips and allied cost cutting measures are gaining scary momentum. And yet, very few companies are geared to serve the new-age digital world, involving vast pools of billable resources whose career progression is now at stake, thanks to newer technologies like cloud computing, Artificial Intelligence (AI), machine learning, big data analytics and Internet of Things (IoT), that thrive on widespread automation of mundane and replicable tasks.

The Indian IT sector has seen five years of sub-teen revenue growth, falling to sub-10% in FY17 for the very first time since the financial meltdown. And going forward, the growth horizon seems misty at best and murky at worst, thanks to a confluence of influencing factors. No wonder, Nasscom postponed its 2017 annual revenue growth forecast citing an extremely volatile situation.

Transition to Digital sounds great in theory but it would involve a considerable time lag, given almost 85 per cent of sectoral projects being conventional development and maintenance endeavours. It’s crucial to study what the players construe as digital: would it be authentic digital forays or merely a repackaging of conventional projects under the new name of digital.

Hiring lateral resources with the requisite skills is yet a costly affair and the cost of reskilling is not merely monetary. Precisely why all the tall digital claims of most players need to be taken with a pinch of salt. Even a decent growth from digital technologies would not offset the loss of revenue from the declining demand for ‘run and maintain’ projects in the near term.

Growing concerns on business margins and rising onsite costs, even though slightly exaggerated - given the likely inaction on the controversial US visa policy besides pre-emptive investments by Indian firms abroad - are headwinds for sure. Wage increases, on the other hand, are on the decline.

Also, competition from MNCs and Captive outsourcing has firmed up on Indian shores. One-fourth of the 300-odd captives worldwide in the last year have been set up in India, focused on digital technologies including AI.

In today’s world, software development builds must keep pace with the user’s market place advancements. Vendors need to offer smart windows of actionable insights to the customer with lot of on-the-go options that can be triggered from their cell phones.

Trump’s protectionist agenda and rhetoric may sound hopelessly insular but it spells good news for smart Indian entities with concrete value props in key verticals like healthcare, manufacturing, retail and managed services. Trump has assured visas to the high-skill tribe in his latest attempt to clear the air on his hard-line stance on immigration.

On the demand side, customers are getting more demanding in core markets like the US. In fact, some of them now ask for 10-15% arbitrary savings through automation every year. This calls for niche technical resources, with credible depth of domain knowledge.

Conventional IT business, from here on, would survive but won’t thrive. Nurturing of T & M projects would demand a manpower rise of almost 70 to 80 per cent, which seems untenable. On the contrary, there is a big retrenchment drive in many companies.

At a time when boundaries between business and technology are thinning by the day, technology is about future-proofing value creation, ahead of mere cost optimization. Indian IT clearly faces a litmus test in the form of a mega technological churn.

Service providers who can deliver outstanding digital experiences would rule the roost. Their approach to digital transformation would hold the key. The sector seems to have reached an inflection point where the arbitrage advantage is shrinking and traditional business are gasping for breath beneath the burden of pricing pressures and downscaling of operations at the customer’s end.

The Digital trees of Indian IT players, far from bearing fruit, are yet to take root.